Initial claims for state unemployment benefits dropped 7,000 to a seasonally adjusted 222,000 for the week ended Feb. 17, the Labor Department said on Thursday. Claims fell to 216,000 in mid-January, which was the lowest level since January 1973 (Leaflets lie on a table at a booth at a military veterans' job fair in Carson, California - Reuters filepic)
THE solid March employment report suggests the economy is strong but not gathering too much steam, leaving the Federal Reserve on course to continue gradually raising interest rates to keep it from overheating.
As the labor market has improved in recent years, Fed officials have been lifting borrowing costs to ensure it doesn’t tighten so much that it fuels excessive inflation. If they saw that risk rising, they could move more aggressively than anticipated.
The new jobs report indicates we’re not at that point yet.
The latest figures show the labor market remains healthy almost nine years into the economic expansion, though wage growth remains modest and the share of adults holding or seeking jobs—the labor-force participation rate—remains low.
Average hourly earnings rose 2.7% in March over the previous year, the Labor Department reported, a sign that employers aren’t yet finding it necessary to offer big pay bumps to draw workers.
Fed Chairman Jerome Powell has said he is closely monitoring wage measures in his assessment of the labor market’s health. For now, he said, there appears to still be room for it to tighten further.
“There’s no evidence that the economy is currently overheating,” he told the Senate Banking Committee on March 1. He is scheduled to give his updated view of the economy in a speech Friday.
Employers added 103,000 jobs in March, down from 326,000 in February but still a solid number. Employment has grown an average 202,000 a month in the first three months of the year, up from 177,000 in the first three months of 2017.
The Labor Department reported that the participation rate edged down slightly, to 62.9% in March from 63% in February, still near its lowest level since the late 1970s.
The rate was above 66% before the last recession. Although it has stabilized over the past three years, it has yet to consistently rise above 63%, partly reflecting the aging of the population but also a portion of Americans who remain outside the job market.
Unemployment remained at 4.1% in March for the sixth month in a row, somewhat below the range of 4.2% to 4.8% that Fed officials consider full employment—the level sustainable in the long run, below which inflation rises.
The Fed wants inflation to accelerate to its target of 2%, but not to go out of control. It views that level as consistent with healthy demand.
It’s impossible to accurately measure the sustainable long-term unemployment rate, and Fed officials have consistently lowered their estimates over the past few years.
Atlanta Fed President Raphael Bostic said in a recent interview the fact that the unemployment rate has been below the Fed’s long-term estimate without generating a pickup in wage growth suggests the full-employment level may be “much, much lower than I think many have thought it has been.”
Fed officials have penciled in three quarter-percentage-point rate increases this year, although several have recently said that four moves might be more appropriate depending on the economy’s performance. The Fed delivered one increase in March.
The jobs report is unlikely to cause officials to deviate from their path. Investors expect the Fed to next raise rates after its June 12-13 meeting. By then, officials will have seen two more monthly employment reports as well as two months of inflation data using their preferred measure. Those could give them a clearer view of the economic outlook.
Many employers complain the tight labor market is making it hard to recruit workers. In recent public remarks, Mr. Powell has questioned the severity of the labor shortage.
“There are a couple places where it looks like there may be additional slack in the labor force,” he told the Senate Banking Committee, citing weak wage growth and the slow pickup in the labor-force participation rate.
The March jobs report could bolster his skepticism. - WSJ
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